People generally have to pay income taxes regardless of how much they earn or the source of their income. They file an annual income tax return to reconcile what they paid with their final financial information for the year.
However, some people become complacent about their tax responsibilities. For example, older adults who have retired might stop filing income tax returns because they no longer work. The assumption that income tax obligations end with full-time employment can lead to substantial income tax debts.
Some people die with years of unpaid taxes owed to the Internal Revenue Service (IRS). The personal representative of their estate may discover that obligation as they begin reviewing financial records and seeking to fulfill the decedent’s financial responsibilities.
What happens in a scenario where someone dies with substantial outstanding tax debts?
The estate has to fulfill their responsibilities
Filing a final income tax return for the decedent is one of the key financial obligations of a personal representative. Sometimes, attempting to calculate what someone owes uncovers a substantial income tax debt. Personal representatives may need help going over financial records when they realize that the decedent had ceased filing tax returns and paying income taxes. Once they calculate the total amount due, they then need to make arrangements to pay the taxes owed by the decedent and any interest or penalties that the IRS may have added to the base amount.
A personal representative might need to exhaust the assets in an estate to cover past-due taxes and other financial obligations. They typically need to be careful to ensure they meet their responsibilities. If they make inappropriate distributions to beneficiaries or pay other debts before handling income tax obligations, they might have personal liability for the tax debt owed by the decedent.
Accurately calculating and promptly resolving income tax debts is of the utmost importance for the protection of a personal representative. People shouldn’t have to risk their own resources to assist with the probate process. Representatives who uncover past-due tax amounts may need assistance calculating what the decedent owed and communicating with the IRS in scenarios where the estate may not be able to cover the balance due in full. And that’s okay. The estate may even pay for this assistance.
